Childcare vital to keep women in workforce

As long as school hours aren’t the same as office hours, childcare for working women with children is a necessity. If affordable flexible childcare isn’t available, one family member, usually the woman, drops out of the workforce to care for the children.

The women who exit the work workforce cease to contribute to superannuation and quickly lose skills. Once you are off the corporate ladder it’s very hard to climb back up.

The resurgent debate about making the outsourcing of childcare tax deductible is not new – it’s just that the potential benefits are even greater.

In 1991 a Tax Institute of Australia submission to the Labor government recommended in favour of personal tax deductions for childcare expenses when related to the ability of parents to earn an income, if a Tax File Number or an Australian Business Number and a bank account were provided. The institute also said fringe benefits tax on employer-paid childcare should be removed.

The biggest winner out of the proposal would have been government revenue, because a 10 per cent increase in the number of working women with children under the age of five would have resulted in $740 million in extra government revenue a year. The cost of the recommendation was minimal, estimated at $143 million a year for tax deductions and $89 million a year for tax rebates.

Since then I have worked on submissions to the Tax Consultative Task Force for the Australian Council of Business Women in 1998, the 2002 Valuing Parenthood Report and the 2006 Inquiry into Balancing Work and Family. All of these submissions focused on the wider problem for the economy when highly skilled women leave the workforce in their 30s and 40s citing as the main reason for their exit the non-availability of suitable childcare.

But the Henry Tax Review in 2009 adopted the line of the men who run Treasury. It argued that childcare for middle- and upper- ranking female executives is an elitist problem. It said government assistance needed to be limited to subsidies and rebates for low- income earners and women who don’t work who have children.

Whatever happened to the government’s supposed goals of wanting women to “participate to the fullest extent in the workforce” and encouraging greater participation on public company boards?

If highly skilled women drop out before they become even middle- ranking executives this vision will remain just that. Means-testing access to childcare payments acts as a disincentive to middle-ranking female executives when they decide whether to return to work. It’s also the cause of high effective marginal tax rates when the rebate and childcare benefit is phased out as income increases.

I am not suggesting that tax deductibility be to the exclusion of the relief schemes that assist families on low incomes. But if the government is serious about getting women to stay in work, get off the factory floor and into senior roles it should face the fact that the cost of childcare for working women is a legitimate expense of earning assessable income and it needs to be tax deductible.

The Valuing Parenthood Report showed that in 2001 the government paid in excess of $16 billion to working women on low incomes and unemployed women with children. In 2006 the government inquiry into Balancing Work and Family identified that a fairer distribution of assistance was needed to encourage working women on higher incomes to remain in the workforce.

Of course the criticism always levelled at tax deductibility of childcare is that it only benefits high-income earners paying higher marginal rates of tax. But it is high- income earners who are the biggest contributors to income tax.

Only 1.7 per cent of women in the Australian workforce earn $104,000 or more, so it’s not difficult maths to work out that at $130 a day per child in Sydney, the cost of childcare outweighs the after- tax incomes of all but top- ranking female workers.

In 2011, the Productivity Commission showed that a 1 per cent increase in childcare fees led to a reduction of 0.3 per cent of mothers in the workforce and a 0.7 per cent decline in hours worked. Keeping women at work is a fragile equation not an elitist issue.

The Grattan Report found that greater female participation in the workforce would result in a potential increase in Australia’s gross domestic product of $25 billion. The imperative to remedy the under-employment of women with children is pressing: workforce participation by women aged 25-44 remains much the same as in 1990.